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A 75-day journey: Bitcoin ETFs navigate through initial turbulence

Published 2024-03-27, 10:10 a/m
© Reuters.

The cryptocurrency market has seen interesting shifts with the introduction of Bitcoin Exchange-Traded Funds (ETFs) on January 11, a move that has brought both volatility and vitality to the digital asset domain, according to the latest report by Citi. 

Over the first 75 days, these ETFs have channeled an impressive $11.3 billion into Bitcoin, which contributes to nearly half of the weekly variance in the primary coin’s price movements. This period has also seen a strong uptick in both spot and futures trading volumes, surpassing pre-ETF benchmarks. 

Initially, the market reacted slowly to the ETFs, but by February, a surge in prices brought Bitcoin to new highs. However, the market has seen a consolidation phase recently, with varying days of inflows and outflows.

The launch period of the ETFs also coincided with a remarkable rally in cryptocurrency prices, with Bitcoin's surging to new all-time highs. This bullish trend was closely linked to the ETF inflows, contrasting sharply with the minimal correlation observed with traditional market drivers such as US equities, gold, and real rates during the same period.

Citi's analysis highlights a stabilization in crypto prices following their initial surge, which might be indicating a maturing market sentiment. As the dust settles, the sustained impact of these funds on market dynamics, trading volumes, and investor behavior continues to be a subject of keen interest among market participants.

The report concludes that the initial spike in futures funding rates indicated a heightened demand for leveraged crypto positions, although these rates have since moderated, suggesting a return to more balanced market conditions.

The upcoming "Bitcoin halving" event will slash the creation of new Bitcoins by half, likely heightening the competition for investment funds. Furthermore, anticipation of the Federal Reserve reducing interest rates could propel the bullish market to new peaks.

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